Does public investment reduce private investment risk ? A real option approach

Cruz, Bruno;Pommeret, Aude
(2002)

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  • Cruz, Bruno
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  • Pommeret, Aude
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Abstract
In this paper, the public investment provision takes place in a stochastic environment. The role of the government is to remove a part of the uncertainty faced by the firm. If the government simply maximizes the value of the firm, then the optimal tax is smaller under imperfect competition then it is under perfect competition since more public capital reduces the selling price. But if the governement seeks to maximize the consumer surplus, tax and public capital provision are a mean to correct the market and the optimal tax is then higher.
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Cruz, B., & Pommeret, A. (2002). Does public investment reduce private investment risk ? A real option approach (ECON Working Papers 2002/39). https://hdl.handle.net/2078.5/130128